The border-tax idea is dead, and Arizona businesses are elated

The White House plans to privately negotiate a massive overhaul of the tax system with Republican leaders in Congress, possibly giving rank-and-file members little if any say over the finished product.
AP

Congressional Republicans and the White House have dropped a proposal for a tax on imports.(Photo: Nick Oza/The Republic)

Republican leadership in Congress and the White House formally gave up pushing a border-adjustment tax last week, dropping one of the more divisive elements of the party's efforts at changing tax laws.

The idea, known as BAT, ran into stiff opposition from both giant retailers like Walmart and smaller Arizona businesses like Accurate Signs and Engraving in Phoenix.

Republicans suggested the border tax in 2016 as a way of taxing foreign goods to strengthen domestic production. Some type of BAT was seen as a key source of revenue to help offset tax cuts elsewhere, such as in the corporate income tax rate.

With that potential revenue now gone, lawmakers will face questions of whether any tax changes now would add to the nation's debt or force deeper spending cuts.

Democrats have signaled opposition to tax cuts tilted to the wealthiest, but the BAT's prospects sank in recent months with division within the GOP. Now, as Republicans are expected to turn more fully to tax policy after the August recess, Republicans on Capitol Hill and in the White House are trying to narrow their tax wish list to items with stronger support.

In a joint statement Thursday, Republicans in the House and Senate and Treasury Secretary Steve Mnuchin said they were dropping the BAT.

"While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform," the statement said.

'We did a little happy dance'

The loss of a tax that some worried could have reached 20 percent on imports brought a sigh of relief to its opponents.

“Obviously tax reform is very needed, but the border-adjustment tax is the wrong way to go about it.”

Jim Mapstead, business owner

"We did a little happy dance over here," said Michelle Ahlmer, executive director of the Arizona Retailers Association, which fought the tax proposal. "There's no way for businesses to cover that cost," meaning it would have led to higher prices.

Jim Mapstead, the owner of Accurate Signs, has said he welcomes tax changes, saying the border tax would have fallen heavily on small businesses like his.

"Obviously tax reform is very needed, but the border-adjustment tax is the wrong way to go about it," he said.

U.S. Rep. David Schweikert, R-Ariz., and a member of the tax-writing House Ways and Means Committee, had supported the border tax, but he is open to other revenue plans in an effort to pass permanent tax changes.

"As tax reform discussions continue, we will start to face the challenge that some of us want real tax reform, a simplified elegant tax code, and others will just want unpaid for temporary tax cuts," he said in a statement. "A few years of tax cuts will not fix our broken tax system, and dramatically adding to the deficit will not help our economy. I will continue to fight for real tax reform."

U.S. Rep. Andy Biggs, R-Ariz., said he wasn't enthusiastic about the BAT idea and doesn't think its demise will significantly harm the effort to enact other tax changes.

"We definitely would have seen food prices go up (under a BAT). Definitely the prices of retail would have gone up," he said.

Biggs, who wants the federal budget to move closer to being balanced, said he thinks the full economic impact of other tax moves — like encouraging businesses to repatriate foreign cash — will help make any tax deal affordable.

Both of Arizona's U.S. senators had indicated their opposition to a border tax.

Earlier this year, John McCain dryly explained his view to Politico this way:

"It'll destroy Arizona's economy. That's my only concern," he said.

Ryan: GOP 'united and ready' for tax reform

“We made a promise to deliver historic tax reform to the American people, and that's exactly what we will do, in 2017.”

House Speaker Paul Ryan

Schweikert has said tax changes should not add to the nation's debt.

"With a federal debt of nearly $20 trillion and a deficit of $559 billion for this fiscal year alone, temporary unpaid for tax cuts are not the solution to our country’s financial problems," Schweikert wrote in an April opinion piece for the Capitol Times, with Adam Brandon, president and CEO of FreedomWorks.

"Should these tax reforms increase the federal deficit, Congress must begin to make cuts to spending and aim for budget-neutrality."

House Speaker Paul Ryan, R-Wisconsin, said the parties still agree on simplifying the tax code, and that the bigger picture is what matters most.

"The overarching goal of tax reform is more important than any single policy. We agreed to move forward without BAT once we determined there is viable alternative that still creates a level playing field for American businesses," he said in a statement.

"Here’s the bottom line: Republicans — in the House, Senate, and administration — are united and ready to get this done. We made a promise to deliver historic tax reform to the American people, and that’s exactly what we will do, in 2017."